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Sustainable and Responsible Growth in Emerging Sectors - IndoSpace
Sustainable and Responsible Growth in Emerging Sectors - IndoSpace

Achieving Sustainable and Responsible Growth in Emerging Sectors: ESG Integration in Industrial and Logistic Park Development

Achieving Sustainable and Responsible Growth in Emerging Sectors: ESG Integration in Industrial and Logistic Park Development

Due to continuous economic expansion, increasing affluence and consumer spending, the industrial and logistics real estate market in India is anticipated to undergo significant transformations in the long run. The next few decades will witness a surge in specialized and emerging sectors, such as renewables, healthcare, and modern industrial parks, among others. Additionally, an aging population, expected to grow rapidly in India, will fuel the demand for alternative housing options, like multifamily housing and senior living facilities. Such estimations have understandably attracted both local and global investors to real estate prospects in India. Nonetheless, to guarantee their investments are safeguarded against regulatory and market risks, it has become progressively crucial to emphasize ESG adoption as a part of the overall business strategy.

ESG framework as a Risk-mitigation Strategy

Given the global concerns around climate change and other environmental factors, it is imperative for emerging sectors such as renewables and industrial parks to prioritize sustainability as part of their long-term goals. The trend towards stricter enforcement of sustainability standards by regulatory bodies is on the rise, and this is further amplified by the increasing awareness of environmental issues among consumers. Investors and regulators are becoming less tolerant of governance and social issues, and ESG metrics are becoming increasingly critical in consumer purchasing decisions. In fact, younger consumers aged between 17-38 years are twice as likely to consider ESG issues before making a purchase, as compared to older consumers above the age of 38 years. Therefore, businesses seeking sustainable growth in the future must take ESG metrics seriously, as non-adherence to sustainability standards can lead to significant market risks.

Consequently, incorporating ESG considerations into logistics and warehousing business strategies is becoming a crucial aspect for progressive investors and business executives. The growing preference for ESG-based investment is evident from the rising number of investors directing funds based on ESG criteria. It is anticipated that assets under management (AuM) based on ESG factors will surge significantly and reach 3.3 trillion dollars, more than triple the current level, by 2026.

The Importance of ESG as Catalyst for Growth

ESG standards not only serve as a safeguard against market and regulatory risks but also act as a growth catalyst for the commercial logistics and warehousing real estate industry. Compliance with ESG benchmarks can drive efficiency, cost savings, and increased productivity. For instance, green buildings, such as grade A warehouses, consume water, energy, and materials more efficiently, which results in significant cost savings for businesses in the long run. Apart from the environmental benefits, businesses that prioritize ESG guidelines can also maintain their Social License to Operate (SLO). Logistics and warehousing Companies with higher ESG scores are more likely to have satisfied employees, and they may also have a higher appeal to stakeholders and customers, which can positively impact their brand and reputation. Investors have recognized the importance of these factors and are increasingly incorporating ESG audits into their due diligence processes. As a result, companies and investors with strong sustainability practices are considered more responsible and may be perceived to have better reputations, enhancing their brand value and appeal to stakeholders.

High ESG scores in companies are linked to better employee satisfaction and attractiveness

ESG integration has a profound impact on logistics and warehousing businesses, with companies that comply with ESG standards being valued more highly than those that don’t. As investors continue to broaden their understanding of ESG, they are increasingly aware that companies that incorporate ESG practices are more likely to outperform market benchmarks, making investments in these companies more appealing. Additionally, the correlation between sustainability and greater returns is becoming more evident, with a significant return on investment reported by the majority of executives.

Driving real change with ESG

To fulfill their ethical obligations towards the planet and its inhabitants, investors and business leaders must make ESG an integral part of their organizations and investments. This requires instilling ESG values in all stakeholders, from investors to employees. However, implementing such a cultural shift can be a challenging task. Initiatives related to the ‘environment’ such as reducing organizational carbon footprint, investing in green buildings, and promoting renewable energy; ‘social’ initiatives such as diversity and inclusion, and ensuring the health, safety, and well-being of people; and ‘governance’ responsibilities such as addressing stakeholder ESG concerns and advocating for more robust ESG policies and practices may be difficult for individual enterprises to achieve.

Even though logistics and warehousing enterprises may strive to adopt ESG values and practices, they often operate within larger global supply chains, and hence, cannot function in isolation. Therefore, it is imperative for businesses in emerging sectors to collaborate with organizations that prioritize ESG compliance and are actively committed to sustainable growth. However, finding ESG-conscious contractors or suppliers can be a challenging task. Hence, it is crucial for regulators and ESG-compliant partners to support their non-compliant counterparts by investing in their capacity building and promoting the adoption of ESG compliance across the entire supply chain.

To optimize ESG implementation, logistics and warehousing businesses can utilize a value chain approach, which involves identifying critical ESG risks, evaluating opportunities to enhance efficiency, and setting ESG priorities, all of which can be supported by the implementation of well-designed plans and programs. However, it’s crucial for organizations across sectors, research institutions, and industry bodies to work together in adopting sustainable practices that promote responsible growth for everyone.

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